Auto insurance is a required expense for almost all car owners. In most states, you cannot legally drive a car without auto liability insurance. In some states, you cannot even register a vehicle without providing proof of liability insurance.
Auto insurance premium rates vary widely. Insurance companies take a number of factors into account when setting auto insurance rates. This can result in substantial rate variation between competing companies for what seems to be equivalent coverage. What factors do auto insurance companies consider when setting premium rates?
1. Driving record
Drivers who have recent traffic tickets or accidents on their driving record can expect to pay more for their auto insurance. Drivers with a DUI conviction on their record may find themselves limited to a high risk policy at a substantially higher premium.
2. Age
Drivers under age 25 and over age 70 have more accidents than other drivers. Most insurance companies increase premium rates for drivers who fall in the these high risk age groups.
3. Gender
Women, on average, have fewer auto accidents than men. For that reason, a female driver with the same driving record as a male driver will usually pay a lower auto insurance premium than the male driver.
4. Credit record
Most car insurance companies review your credit when determining your car insurance premium. Customers with bad credit can expect to pay as much as 50 percent more for their car insurance than customers with good credit. Insurers justify their reliance on credit reports by arguing that customers with poor credit tend to file more claims than customers with good credit. Additionally, insurers may also believe that a person’s poor credit rating may indicate a certain degree of recklessness which makes the person a greater risk for the insurance company.
5. Vehicle insured
Some vehicles cost more to insure than others. If a particular make of automobile has a high theft rate, a poor safety record, or is overly expensive to repair, then the insurance premium rates for that vehicle will also tend to be higher. Additionally, premiums may also be higher for vehicles that tend to cause more damage when involved in accidents. Imported luxury vehicles tend to be the most expensive to insure, while inexpensive sedans are usually the least expensive to insure.
6. Vehicle usage
Generally, the more you drive your vehicle, the higher your auto insurance premium will be. Simply put, the more that you drive, the greater the possibility that you may be involved in an accident that will cause a financial loss to the insurance company. Therefore, insurance companies charge higher premium rates to compensate themselves for the greater risk assumed. Additionally, insurance premiums for a vehicle used for commercial purposes will tend to be higher than a vehicle used strictly for leisure purposes.
7. Location
Auto insurance is more expensive in some places than other places. Where you live can be a major factor in determining the amount of your auto insurance premium. According to insure.com, Michigan, Louisiana, and Oklahoma are the most expensive states to insure an automobile in the United States, while Maine, South Carolina, and Vermont have the lowest average automobile insurance rates in the United States. An automobile insurance policy purchased in Michigan is over $1,500 more expensive per year than a comparable policy purchased in Vermont.
8. Type of coverage
State laws generally only require that car owners carry liability insurance. Many owners also choose to carry additional insurance to protect themselves from loss, such as collision or comprehensive coverage to protect the owner from damage to his vehicle, and uninsured or under-insured motorist coverage to protect the owner from damage caused by uninsured or under-insured drivers. These additional coverage packages add additional premium charges to an auto insurance policy.
Auto insurance companies consider a number of factors in setting auto insurance premium rates. Some factors are within a customer’s control and others are not. Understanding these factors can help a customer find the best auto insurance rate for his particular situation.